A BILL TO BE ENTITLED
AN ACT to modernize and simplify the tax code of north carolina.
The General Assembly of North Carolina enacts:

part i. franchise tax
SECTION 1.1.  Article 3 of Subchapter I of Chapter 105 of the General Statutes is repealed.
SECTION 1.2.  G.S. 58‑6‑7(a) reads as rewritten:
"§ 58‑6‑7.  Licenses; perpetual licensing; annual license continuation fees for insurance companies.
(a)	In order to do business in this State, an insurance company shall apply for and obtain a license from the Commissioner. The license shall be perpetual and shall continue in full force and effect, subject to timely payment of the annual license continuation fee in accordance with this Chapter and subject to any other applicable provision of the insurance laws of this State. The insurance company shall pay a fee for each year the license is in effect, as follows:
For each domestic farmer's mutual assessment fire insurance company	$	25.00For each fraternal order		500.00
For each of all other insurance companies		2,500.00
The fees levied in this subsection are in addition to those specified in G.S. 58‑6‑5."
SECTION 1.3.  G.S. 105‑130.6A(a) reads as rewritten:
"(a)	Definitions. – The provisions of G.S. 105‑130.6 govern the determination of whether a corporation is a subsidiary or an affiliate of another corporation. In addition, the following definitions apply in this section:
(1)	Affiliated group. – A group that includes a corporation, all other corporations that are affiliates or subsidiaries of that corporation, and all other corporations that are affiliates or subsidiaries of another corporation in the group.
(2)	Bank holding company. – A holding company with an affiliate that is subject to the privilege tax on banks levied in G.S. 105‑102.3.
(3)	Dividends. – Dividends received that are not taxed under this Part.
(4)	Electric power holding company. – A holding company with an affiliate or a subsidiary that is an electric power company engaged in the business of furnishing electricity, electric lights, current, or power.
(5)	Expense adjustment. – The adjustment required by G.S. 105‑130.5(c)(3) for expenses related to dividends not taxed under this Part.
(6)	Holding company. – A corporation that receives during its taxable year more than eighty percent (80%) of its gross income from corporations in which it owns directly or indirectly more than fifty percent (50%) of the outstanding voting stock or voting capital interests."
SECTION 1.4.  G.S. 105‑241(b) reads as rewritten:
"(b)	Electronic Funds Transfer. – Payment by electronic funds transfer is required as provided in this subsection.
(1)	Corporate estimated taxes. – A corporation that is required under the Code to pay its federal‑estimated corporate income tax by electronic funds transfer must pay its State‑estimated corporate income tax by electronic funds transfer as provided in G.S. 105‑163.40.
(2)	Prepayment taxes. – A taxpayer that is required to prepay tax under G.S. 105‑164.16 must pay the tax by electronic funds transfer.
(2a)	Motor fuel taxes. – A taxpayer that files an electronic return under Subchapter V of this Chapter or Article 3 of Chapter 119 of the General Statutes must pay the tax by electronic funds transfer.
(3)	Large tax payments. – Except as otherwise provided in this subsection, the Secretary shall not require a taxpayer to pay a tax by electronic funds transfer unless, during the applicable period for that tax, the average amount of the taxpayer's required payments of the tax was at least twenty thousand dollars ($20,000) a month. The twenty thousand dollar ($20,000) threshold applies separately to each tax. The applicable period for a tax is a 12‑month period, designated by the Secretary, preceding the imposition or review of the payment requirement. The requirement that a taxpayer pay a tax by electronic funds transfer remains in effect until suspended by the Secretary. Every 12 months after requiring a taxpayer to pay a tax by electronic funds transfer, the Secretary must determine whether, during the applicable period for that tax, the average amount of the taxpayer's required payments of the tax was at least twenty thousand dollars ($20,000) a month. If it was not, the Secretary must suspend the requirement that the taxpayer pay the tax by electronic funds transfer and must notify the taxpayer in writing that the requirement has been suspended."
SECTION 1.5.  G.S. 105‑259 reads as rewritten:
"(b)	Disclosure Prohibited. – An officer, an employee, or an agent of the State who has access to tax information in the course of service to or employment by the State may not disclose the information to any other person except as provided in this subsection. Standards used or to be used for the selection of returns for examination and data used or to be used for determining the standards may not be disclosed for any purpose. All other tax information may be disclosed only if the disclosure is made for one of the following purposes:
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(5b)	To furnish to the finance officials of a city a list of the utility taxable gross receipts and piped natural gas tax revenues attributable to the city under G.S. 105‑187.44 or under former G.S. 105‑116, G.S. 105‑116.1, and G.S. 105‑120.
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SECTION 1.6.  G.S. 159B‑27 reads as rewritten:
"§ 159B‑27.  Taxes; payments in lieu of taxes.
	A project jointly owned by municipalities or owned by a joint agency shall be exempt from property taxes; provided, however, that each municipality possessing an ownership share of a project, and a joint agency owning a project, shall, in lieu of property taxes, pay to any governmental body authorized to levy property taxes the amount which would be assessed as taxes on real and personal property of a project if such project were otherwise subject to valuation and assessment by the Department of Revenue. Such payments in lieu of taxes shall be due and shall bear interest if unpaid, as in the cases of taxes on other property. Payments in lieu of taxes made hereunder shall be treated in the same manner as taxes for purposes of all procedural and substantive provisions of law. Any administrative building and associated land shall be deemed a project for purposes of this paragraph.
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SECTION 1.7.  G.S. 160A‑675 reads as rewritten:
"§ 160A‑675.  Tax exemption.
A district, and its property, bonds and notes, and income, are exempt from property taxes and income taxes to the same extent as if it were a city."
SECTION 1.8.  This Part becomes effective for taxable years beginning on or after January 1, 2014.  

part ii. Sales tax modifications
SECTION 2.1.  G.S. 105‑164.3 is amended by adding a new subdivision to read:
"§ 105‑164.3.  Definitions.
The following definitions apply in this Article:
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(38a)	Service contract. – A warranty agreement, a maintenance agreement, a repair contract, or a similar agreement or contract by which the seller agrees to maintain or repair tangible personal property.
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SECTION 2.2.  G.S. 105‑164.4(a) reads as rewritten:
"§ 105‑164.4.  Tax imposed on retailers.
(a)	A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is three and one‑half percent (3.5%).
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SECTION 2.3.  G.S. 105‑164.4A is reenacted and is rewritten to read:
"§ 105‑164.4A.  Tax imposed on service providers.
(a)	Tax. – A privilege tax is imposed on a service provider at a percentage rate of its gross receipts. The rate of tax is the general rate set in G.S. 105‑164.4. For purposes of this Article, a service provider is considered a retailer and a service contract is considered a service.
(b)	Exemptions. – A tax imposed by this section does not apply to any of the following:
(1)	A service that is provided to a business for use in that business.
(2)	Services taxed under G.S. 105‑164.4.
(3)	Medical services."
SECTION 2.4.  G.S. 105‑467 reads as rewritten:
"§ 105‑467.  Scope of sales tax.
(a)	Sales Tax. – The sales tax that may be imposed under this Article is limited to a tax at the rate of one percent (1%) of the following:
(1)	A retailer's net taxable sales and gross receipts that are subject to the general rate of sales tax imposed by the State under G.S. 105‑164.4 or G.S. 105‑164.4A.
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(b)	Exemptions and Refunds. – The State exemptions and exclusions contained in G.S. 105‑164.4A, the State sales tax imposed on service providers, G.S. 105‑164.13, the State sales and use tax holidays contained in G.S. 105‑164.13C and G.S. 105‑164.13D, and the State refund provisions contained in G.S. 105‑164.14 through G.S. 105‑164.14B apply to the local sales and use tax authorized to be levied and imposed under this Article. Except as provided in this subsection, a taxing county may not allow an exemption, exclusion, or refund that is not allowed under the State sales and use tax. A local school administrative unit and a joint agency created by interlocal agreement among local school administrative units pursuant to G.S. 160A‑462 to jointly purchase food service‑related materials, supplies, and equipment on their behalf is allowed an annual refund of sales and use taxes paid by it under this Article on direct purchases of tangible personal property and services, other than electricity, telecommunications service, and ancillary service. Sales and use tax liability indirectly incurred by the entity on building materials, supplies, fixtures, and equipment that become a part of or annexed to any building or structure that is owned or leased by the entity and is being erected, altered, or repaired for use by the entity is considered a sales or use tax liability incurred on direct purchases by the entity for the purpose of this subsection. A request for a refund shall be in writing and shall include any information and documentation required by the Secretary. A request for a refund is due within six months after the end of the entity's fiscal year. Refunds applied for more than three years after the due date are barred.
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SECTION 2.5.  This Part becomes effective January 1, 2014, and applies to sales made on or after that date.

part III.  Personal Income tax changes
SECTION 3.1.  G.S. 105‑134.2(a) reads as rewritten:
(a)	A tax is imposed at the rate of six percent (6%) upon the North Carolina taxable income of every individual. The tax shall be levied, collected, and paid annually.
																																																				"SECTION 3.2.  G.S. 105‑134.6 reads as rewritten:
"§ 105‑134.6.  Modifications to adjusted gross income.
(a)	S Corporations. – Each shareholder's pro rata share of an S Corporation's income is subject to the adjustments provided in this section.
(a1)	Personal Exemption. – In calculating North Carolina taxable income, a taxpayer may deduct an exemption amount equal to six thousand dollars ($6,000). 																				
						(b)	Other Deductions. – In calculating North Carolina taxable income, a taxpayer may deduct any of the following items to the extent those items are included in the taxpayer's adjusted gross income.
(1)	Interest upon the obligations of any of the following:
a.	The United States or its possessions.
b.	This State, a political subdivision of this State, or a commission, an authority, or another agency of this State or of a political subdivision of this State.
	(2)	Gain from the disposition of obligations issued before July 1, 1995, to the extent the gain is exempt from tax under the laws of this State.
(3)	Ten thousand dollars ($10,000) of benefits received under Title II of the Social Security Act and amounts received from retirement annuities or pensions paid under the provisions of the Railroad Retirement Act of 1937.
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(23)	An amount not to exceed five thousand dollars ($5,000) paid by the taxpayer during the taxable year for costs incurred for funeral services and for tangible personal property used for human burial purposes or as a repository for human remains.
(c)	Additions. – In calculating North Carolina taxable income, a taxpayer must add any of the following items to the extent those items are not included in the taxpayer's adjusted gross income. For a taxpayer who deducts the itemized deductions amount under subsection (a2) of this section, the taxpayer must add any of the following items to the extent those items are included in the itemized deductions amount.
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			…												…(10)	The amount excluded from gross income under section 199 of the Code.
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SECTION 3.3.  The following statutes are repealed:
G.S. 105‑134.7
G.S. 105‑151.1
G.S. 105‑151.11
G.S. 105‑151.12
G.S. 105‑151.13
G.S. 105‑151.14
G.S. 105‑151.18
G.S. 105‑151.20
G.S. 105‑151.21
G.S. 105‑151.24
G.S. 105‑151.25
G.S. 105‑151.26
G.S. 105‑151.31(c)
G.S. 105‑151.33
SECTION 3.4.  This Part is effective for taxable years beginning on or after January 1, 2014.

part IV. Economic incentives tax changes
SECTION 4.1.  Article 3C of Chapter 105 of the General Statutes is repealed. 
SECTION 4.2.  G.S. 105‑129.39 reads as rewritten:
"§ 105‑129.39.  Sunset.
This Article expires for qualified rehabilitation expenditures and rehabilitation expenses incurred on or after January 1, 2014."
SECTION 4.3.  G.S. 105‑129.51(b) reads as rewritten:
"(b)	This Article is repealed for taxable years beginning on or after January 1, 2016."
SECTION 4.4.  G.S. 105‑129.75 reads as rewritten:
"§ 105‑129.75.  Sunset.
This Article expires January 1, 2014, for rehabilitation projects for which an application for an eligibility certification is submitted on or after that date."
SECTION 4.5.  G.S. 105‑129.99 reads as rewritten:
"§ 105‑129.99.  Sunset.
This Article is repealed effective for taxable years beginning on or after January 1, 2014."
SECTION 4.6.  This Part is effective when it becomes law.

part v. corporate income tax changes
SECTION 5.1.  G.S. 105‑130.3 reads as rewritten:
"§ 105‑130.3.  Corporations.
A tax is imposed on the State net income of every C Corporation doing business in this State. An S Corporation is not subject to the tax levied in this section. The tax is four percent (4%) of the taxpayer's State net income.
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SECTION 5.2.  G.S. 105‑130.5 reads as rewritten:
"§ 105‑130.5.  Adjustments to federal taxable income in determining State net income.
(a)	The following additions to federal taxable income shall be made in determining State net income:
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(b)	The following deductions from federal taxable income shall be made in determining State net income:
(1)	Interest upon the obligations of the United States or its possessions, to the extent included in federal taxable income: Provided, interest upon the obligations of the United States shall not be an allowable deduction unless interest upon obligations of the State of North Carolina or any of its political subdivisions is exempt from income taxes imposed by the United States.
(1a)	Interest upon the obligations of 	this State, a political subdivision of this State, or a commission, an authority, or another agency of this State or of a political subdivision of this State, to the extent included in federal taxable income.
	
(3a)	Dividends treated as received from sources outside the United States as determined under section 862 of the Code, net of related expenses, to the extent included in federal taxable income.…
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(c)	The following other adjustments to federal taxable income shall be made in determining State net income:
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	(d)	Repealed by Session Laws 1987, c. 778, s. 3.
(e)	Notwithstanding any other provision of this section, any recapture of depreciation required under the Code must be included in a corporation's State net income to the extent required for federal income tax purposes.
(f)	Expired."
SECTION 5.3.  The following statutes are repealed:
G.S. 105‑130.9
G.S. 105‑130.22
G.S. 105‑130.25
G.S. 105‑130.34
G.S. 105‑130.36
G.S. 105‑130.37
G.S. 105‑130.39
G.S. 105‑130.43
G.S. 105‑130.44
G.S. 105‑130.45
G.S. 105‑130.46.
SECTION 5.4.  This Part is effective for taxable years beginning on or after January 1, 2014.

part VI. Motor fuels tax changes
SECTION 6.1.  G.S. 105‑449.80(a) reads as rewritten:
"(a)	Rate. – The motor fuel excise tax rate is a flat rate of thirteen and one‑eighth cents (13 1/8¢) a gallon plus a variable wholesale component. The variable wholesale component is either two and five‑eighths cents (2 5/8¢) a gallon or five and one‑quarter percent (5.25%) of the average wholesale price of motor fuel for the applicable base period, whichever is greater.
The two base periods are six‑month periods; one ends on September 30 and one ends on March 31. The Secretary must set the tax rate twice a year based on the wholesale price for each base period. A tax rate set by the Secretary using information for the base period that ends on September 30 applies to the six‑month period that begins the following January 1. A tax rate set by the Secretary using information for the base period that ends on March 31 applies to the six‑month period that begins the following July 1."
SECTION 6.2.  This Part becomes effective January 1, 2014.

part vii. tax credit for department of labor apprentice hires
SECTION 7.1.  Article 3B of Subchapter I of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105‑129.16K.  Credit for employing apprentices.
(a)	Credit. – A taxpayer who employs an apprentice pursuant to an apprenticeship agreement registered with the Apprenticeship and Training Bureau of the North Carolina Department of Labor is allowed a credit equal to one thousand dollars ($1,000) for each apprentice employed. A credit is allowed if the apprentice was in the employ of the taxpayer for at least seven full months of the taxable year. A credit is allowed for an individual apprentice for up to four taxable years. 
(b)	Documentation. – In order to claim the credit allowed by this section, the taxpayer must make available to the Department a written certification from the Apprenticeship and Training Bureau of the Department of Labor containing the name and taxpayer identification number of each registered apprentice employed by the taxpayer during the taxable year."
SECTION 7.2.  This Part is effective for taxable years beginning on or after January 1, 2014.

Part Viii. effective date
SECTION 8.  Except as otherwise provided in this act, this act is effective when it becomes law. This act does not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by this act before the effective date of its amendment or repeal; nor does it affect the right to any refund or credit of a tax that accrued under the amended or repealed statute before the effective date of its amendment or repeal.